News

Secretary-General of UNCTAD, opening address to JAG

by

Speech by Mr. Supachai Panitchpakdi, Secretary-General of UNCTAD. Delivered on Day One of the 46th Session of the ITC JAG, 21-22 May 2012. Monday, 21 May 2012, 10:30-10:40.

CHECK AGAINST DELIVERY

Excellencies,Distinguished delegates,Ladies and gentlemen,

I am pleased to be here with you today at this Joint Advisory Group meeting and to have a chance to speak about the recent UNCTAD XIII Conference as well as ITC’s work, including joint projects with UNCTAD.

The agreement reached at our thirteenth ministerial conference last month in Doha, Qatar, known as the Doha Mandate, marks an important step forward for UNCTAD. Not only does it provide a solid basis for us to build on our existing work in promoting inclusive and sustainable growth and development, but the agreement also clearly recognizes the need to pursue globalization that is development-centred. It states that “finance should support the real economy in support of sustained, inclusive and equitable economic growth and sustainable development”. It also underlines that “all countries, developed and developing alike, can pay serious political economic and social costs from financial shocks.”

This last statement may seem obvious, especially at the moment, when the world economic recovery from the 2008 financial crisis remains very fragile, and the recessionary conditions that prevail in a number of developed economies weigh on prospects in the developing world. But if we are to move to a form of growth and development that is more balanced and sustainable, it is crucial to acknowledge and understand the risks posed by the type of finance-led globalization that has prevailed for the past 20 to 30 years. Indeed, in the absence of a stable and supportive financial system it is very difficult to see how international trade can make its full contribution to inclusive growth and development.

A focus on development-centred globalization points to the need for new policies and instruments to adapt and control the working of economic forces, so that they support rather than undermine efforts to bolster growth that is socially inclusive and stable. To take just one example, the Doha Mandate recognises that "Industrial policies play an important role in establishing dynamic and sustainable development in many countries. These need to be complemented with other policies in relevant areas if they are to have their full and intended effect. This includes economic diversification, improving international competitiveness and realizing more sustainable and inclusive outcomes".

This is important not only because it opens up an area of policy making that has been neglected in recent years, but also because it recognizes that different ways of policymaking may be needed to build a more integrated approach across traditional policy silos. The idea of "picking winners" has often been used to marginalise the contribution of sectoral policies in successful development stories, both old and new, but this is a misleading description. What is needed, and what the success stories demonstrate, is an approach that not only links industrial policies to macroeconomic, sectoral, trade and financial policies in support of growth and development, but also brings together economic, environmental and social policies, and leads to sustainable and inclusive outcomes.

There can be no doubt that rebalancing the global economy towards development will not be easy – a fact underscored by the, at times, fractious negotiations that led to agreement in Doha. However, we at UNCTAD are determined to work with all our stakeholders and partners on thinking, policies and programmes that contribute to development-centred globalization.

Key elements in such efforts involve what we sometimes call the “four I’s” that drive economic development. These are: investment in the productive sector, institutional development, inclusiveness and innovation. These are closely intertwined with the critical work that ITC does in supporting the trade capacity of developing countries.

Regarding investment policies, the challenge is to ensure that investment in developing countries strengthens the productive capacities needed for broad-based economic development and effective integration into the global economy. Recent trends on this front are mixed, particularly in relation to least developed countries (LDCs). On the one hand, inflows of foreign direct investment, including to least developed countries, have surged in the past 20 years, despite a dip following the financial crisis. In the decade 2001-2010, FDI inflows were the most important external private capital flows for LDCs, reaching an estimated $24 billion in 2010. These are a major – and increasing – contributor to capital formation in LDCs. However, the overall rates of capital formation have not risen across much of the developing world over the past twenty years, with public investment notably weaker, and remain well below the figures achieved in the 1960s and 1970s. Moreover, especially in Africa, much of existing investment remains concentrated in extractive and mineral sectors, rather than in the wider productive economy.

Given the economic difficulties in a number of developed countries, it is certainly encouraging that FDI by developing and transition economies, especially the BRICS, is growing. Developing and transition economies nearly tripled their share of global FDI outflows in the period since 2000. The four BRIC countries alone account for about a quarter of Greenfield FDI projects in LDCs, for example. Such investment, which initially tended to remain in neighbouring countries, is increasingly crossing regions.

In this context, I would also like to address the aspect of inclusiveness. Relatively high growth rates in developing countries during recent years have not made significant enough inroads in reducing unemployment, underemployment and poorly paid work in the informal economy. As a result, increasing focus is being placed on the link between trade and employment, as well as trade and poverty reduction. This is a certainly an area where UNCTAD and ITC can find strong synergies.

The link is particularly important in the context of commodity-dependent countries. High prices in recent years may lead to growth but benefits are often not shared within the wider society. The extractive industries tend to generate enclave economies: they create a small number of direct jobs, demand few domestic inputs and the related infrastructure is only oriented to exports, not the integration of the national economies. In these cases, the main contribution they can make for development consists of the revenues they transfer to governments.

Similarly, much of the recent export growth of developing countries has been due to assembly industries. While these do generate some employment, the positive potential impact of exports can be sterilized because most of the inputs are imported. This explains in several cases the contrast between surging exports and weak GDP growth. Again, an active macroeconomic and industrial policy is then necessary for generating a network of domestic suppliers that would progressively incorporate technology and substitute imports.

This has policy implications for the LDCs themselves and for organizations working with LDCs, such as ITC and UNCTAD. Interventions likely will need to be tailored to more actively promote linkages between these industries and sectors and related forward and backward industries, so as to share the gains of trade more widely and support employment, structural transformation and poverty reduction.

Ladies and gentlemen,

ITC and UNCTAD continue to collaborate in a number of areas, some of which were mentioned in the Doha agreement. Among these joint efforts are:

• Promoting transparency and shining light on barriers to trade. This helps to foster policy improvements that are critical to the ability of exporters and countries to accessing global value chains. ITC signed a memorandum of understanding in October 2011 with UNCTAD, the World Bank and the African Development Bank to cooperate in giving developing countries access to trade and market data. The agreement builds on a history of cooperation between WTO, the World Bank and ITC for continual improvements to the consistency of data and published indicators, efficiency gains and overall improvement in global trade transparency. The voice of the private sector that ITC adds to this partnership has been particularly valuable.

• ITC is working closely with UNCTAD’s Virtual Institute to build the capacity of universities, think tanks and other academic institutions in developing countries to use market analysis tools and methods to assess trade performance and identify export potential.

• ITC also plays an active role in reinforcing UNCTAD's Empretec programme, which is designed to promote the creation of sustainable, innovative and internationally competitive SMEs. One example of our collaboration is the work carried out by the Empretec network with ITC’s Modular Learning System on Supply Chain Management, a programme which I would like to congratulate for being awarded an ISO-9001 certificate.

• ITC is also contributing to an upcoming UNCTAD publication on Corporate Social Responsibility in value chains on “the role of private standards in responsible supply chains

Finally, I would like to make a few remarks regarding ITCs own work. We have followed with interest the development of ITC’s new draft Strategic Plan and corporate logframe and fully support these efforts. We encourage ITC in its efforts to put in place indicators that help to measure not only the outcome but eventually also the impact of your work in terms of development objectives.

Maximizing ITC’s impact depends on sustained focus on large projects. I urge donors to provide support to ensure that ITC can continue projects that are significant enough in scale to be effective both in delivering Trade-Related Technical Assistance that makes a real difference and in reflecting adequately the voice of the private sector. A second condition needed to sustain ITC’s work is the mainstreaming of results-based management throughout the organization. Results-based management is not only important for integrated reporting, robust needs assessment, quality control in project design and risk management in implementation, it also marks a cultural change in the organization.